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Indirect Taxation in Vertical Oligopoly

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  • Martin Peitz
  • Markus Reisinger

Abstract

type="main"> This paper analyzes the effects of specific and ad valorem taxation in an industry with downstream and upstream oligopoly and endogenous entry in both layers. We find that it is typically more efficient to levy an ad valorem tax downstream than upstream, while it is immaterial on which layer a specific tax is levied. We also show that tax revenues should be raised only through ad valorem taxes. Furthermore, we provide conditions under which the introduction of an indirect tax improves welfare. From a total surplus perspective, excise taxes tend to appear in a less favorable light when the full vertical supply chain is considered compared to a partial analysis which only takes into account market power at one layer. Finally, we demonstrate that a tax tends to be shifted to a larger extent into the final consumer price in vertical oligopoly than in standard oligopoly.

Suggested Citation

  • Martin Peitz & Markus Reisinger, 2014. "Indirect Taxation in Vertical Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 709-755, December.
  • Handle: RePEc:bla:jindec:v:62:y:2014:i:4:p:709-755
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    Citations

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    Cited by:

    1. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    2. Anna Laura Baraldi & Christian Rojas, 2011. "Cost Pass-Through with Network Externalities," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 10(3), pages 177-199, December.
    3. Takanori Adachi & Muhammad Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    4. Christos Kotsogiannis & Konstantinos Serfes, 2014. "The Comparison of ad Valorem and Specific Taxation under Uncertainty," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(1), pages 48-68, February.
    5. Ghosh, Arghya & Morita, Hodaka & Wang, Chengsi, 2014. "Horizontal mergers in the presence of vertical relationships," Working Papers 14-27, University of Mannheim, Department of Economics.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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